The advantages and disadvantages of selling property to cash buyers

Receiving a fair cash offer for your property is great news for most homeowners, provided the buyer can show proof that they have the funds to pay for the property.  Compared to an offer contingent on conventional or FHA financing, a cash offer provides sellers with more certainty that the sale will not only close but do so quickly without annoying roadblocks from lenders.  The seller does not have to worry about the deal falling apart because the property does not appraise.  And because no lenders are involved, the seller will not have to make any lender required repairs.  In this article we will discuss the advantages and disadvantages of working with a cash buyer, when selling to a cash buyer is a good option, and how home sellers can find cash house buyers for their properties.

More certainty and faster closing with a cash buyer.

Cash offers are typically more attractive than offers with financing contingencies because they eliminate the obstacles and delays that a lender may create.  Entering into a purchase agreement with a preapproved buyer does not mean the sale will close and there are many opportunities for things to go wrong and kill the deal.  For example, if a property does not appraise, the buyer will likely ask the seller for a discount during the escrow process which may force time-crunched sellers to agree to reduce the price or risk falling out of contract.  A lender may also ask the seller to make extensive repairs to the property and delay closing until those repairs are complete.  Even being preapproved for a mortgage does not guarantee the buyer will be able to close; a preapproval letter does not guarantee the buyer will qualify for or obtain the loan.  Lastly, cash sales usually close faster than sales involving a lender since the parties do not have to abide by the lender’s timeline.

Cash offers typically reflect the convenience and expediency sellers get from selling to a cash buyer.

While there are many advantages to working with a cash buyer, one possible downside is that a cash offer will typically be lower than an offer with a traditional financing contingency because a cash offer reflects the value that the seller gets from swiftly and easily selling a home.  In a cooling real estate market like the one we are in now a cash offer may be particularly attractive because time is of the essence.  Spending over a month waiting to close on a property and having the sale fall through may be particularly problematic if the value of the property continues declining during the escrow period.

Buyers relying on conventional financing cannot typically finance neglected, distressed properties.

While there are many situations when selling to a cash buyer may be the best option, there are also certain situations where it makes sense to sell to a buyer who plans to secure traditional financing.  Homeowners who need to sell quickly can breathe a big sigh of relief upon receiving a fair offer from a reliable cash buyer.  Homeowners who need to sell property in disrepair, distressed property, or property with structural problems will also be best served by a cash buyer because traditional lenders will not approve loans for properties that have habitability issues and will likely require the seller to repair significant deferred maintenance problems before approving financing.  In truth, if your property is in poor condition, you may not have much of a choice and may need to sell to a cash buyer.  On the other hand, owners of properties that are well-maintained, updated, or renovated who are not under time pressure may be better off selling to a buyer who plans to secure financing because they are likely to pay a higher purchase price than a cash buyer.  It is important to be honest about the condition of your property and your selling timeline when deciding whether to go with a cash offer or an offer subject to a financing contingency.

How to find cash buyers.

The fastest way to sell a property is to put it on the market for a competitive price.  This typically means listing your property with a realtor on the MLS.  The condition of your property and the price will decide the sort of buyers it attracts.  Traditional buyers are looking for move-in ready properties and because of the financing requirements discussed above, will stay away from properties in disrepair. On the other hand, cash buyers are less picky about the condition of the property.  Cash buyers like LP Property Group can buy distressed property without asking the owners to make any repairs.  Listing with a realtor for a low price is good way to bring investors to the door.  Be mindful that you will pay anywhere from three to six percent of the purchase price in commissions to a realtor for selling your home, regardless of whether you end up selling to an investor or a traditional buyer.

Sellers who want to avoid paying realtor commissions can find property buyers who will buy their home without involving a realtor.  Not having a lender or realtor involved allows for some flexibility, for example, buyers in an off-market sale are typically more willing to pay escrow fees and title insurance fees.  A simple Google search for a phrase like “sell my house for cash” or other synonymous terms will likely bring up a lot of real estate investors and cash property buyers.  Sellers can also list their homes “for sale by owner” and reach out to their network to find cash buyers.

Conclusion

While cash offers are usually smaller than offers subject to financing contingencies, selling to a qualified cash buyer has many advantages, namely the speed and predictability of a cash sale.  A cash sale can close much faster than a traditional sale and the seller will avoid needing to make any lender-required repairs and being forced to re-negotiate the purchase price if the property does not appraise.  The condition of your home and your selling timeline will largely dictate whether a cash sale is best.  There are many ways to attract cash buyers to your property.  Sellers who want to avoid paying realtor commissions can reach out to investors and property buyers directly, without involving a realtor.

Disclaimer: The above is solely intended for informational purposes and in no way constitutes legal advice or specific recommendations.